Royal Bank of Scotland has announced plans to sell its remaining 28% stake in Direct Line, the UK's biggest car insurer, as the part-nationalised bank prepares to unveil an £8bn loss.

RBS said it would sell its 423m shares in Direct Line to institutional investors. At Wednesday night's closing share price the stake was worth more than £1bn.

The news came after the insurer, whose brands include Churchill, Privilege and the Green Flag roadside recovery service, reported better-than-expected results for last year, with profits up 70% to £424m.

Direct Line shrugged off the impact of recent storms and flooding and made a fourth-quarter profit of £91m, up from £60m a year ago. It announced a second special dividend of 4p, taking total dividends for 2013 to 20.6p a share.

RBS's chief executive, Ross McEwan, will set out his turnaround strategy for the bank on Thursday, but this is likely to be overshadowed by a new row over bonuses.

RBS is expected to hand out £500m to its bankers – down a third on the £800m paid out last year but still controversial at a time of big losses. Mis-selling scandals and legal bills in the US resulted in a £3bn hit for the bank, which is 81% owned by British taxpayers after being bailed out by the government during the 2008 financial crisis.

Chancellor George Osborne has indicated that a sale of RBS shares is not imminent.

RBS's top management have waived their bonuses for 2013, but other employees are in line for payouts, including Rory Cullinan, who will run the new "bad bank" being set up.

The shadow financial secretary to the Treasury, Cathy Jamieson, said: "Taxpayers will be staggered if huge bonuses continue to be paid out at a time when significant losses are being made.

"George Osborne should make clear he will reject any request from RBS to increase the bank bonus cap so bonuses worth more than 100% of salary can be paid." She called on the government to repeat Labour's tax on bank bonuses.

Joe Rundle at ETX Capital said of the Direct Line sale: "Although this disposal by RBS was anticipated, the UK bank picked an interesting time to execute the move as many pinned it for end of 2014.

"The move could be political, readying RBS for privatisation, or at least speeding the process ahead of the UK elections next year.

"RBS shareholders may express disappointment as Direct Line, for some, would be seen as a business to hold on to, but then again, there are plenty in the market who believe RBS needs to continue to unwind the controversial work of former RBS head, Fred Goodwin."